Investing in Tulips and Bitcoin

I find it hard to see the current bonanza surrounding Bitcoin as anything other than 21st-century Tulip Mania. Nonetheless, it’s too much fun to not throw my hat in the ring, so I finally bought some Bitcoin, Ethereum and Litecoin. While I think this has a high probability of being a giant bubble, that doesn’t mean it’s impossible to make a bit of money before it all collapses.

Here’s what I’m doing:

Be Prepared to Lose Everything

Between hacking and the bubble bursting without warning, never seeing any of the money I put into cryptocurrencies is a realistic outcome. The problem with the sub-prime crisis is that people were gambling with money they couldn’t afford to lose.

Buy in Stages

Bitcoin can drop 500 dollars in a day and then be up a grand by the end of the week. The chances of timing buys perfectly are pretty slim, so use dollar cost averaging. Let’s say you’ve set your investment as 1k: buy 100 dollars worth of coin over a few weeks or months rather than all at once.

Set Conditions

If Bitcoin hits 10k, Ethereum 500 or Litecoin 200, I’m selling. Time to buy a nice cigar and call it a fun adventure. If Bitcoin hits 100k in ten years, will I kick myself? No — I still will have doubled my money.

This isn’t a strategy to get rich, it’s seeing if I can make a few hundred bucks. Some guys like poker, but for whatever reason this appeals to me more.

Keep Records

When all is said and done, I wonder if I’ll make out any better than if I had just put my money in an index fund. Anyway, it’ll be interesting and hopefully I’ll learn something from the process.